Often times, when one buys a pre-owned or second hand vehicle that has a valid insurance cover, the assumption is that the new owner is automatically covered. When the new owner gets involved in an accident before the insurance cover expires, he/she may not get any compensation for their vehicle and any third parties when a claim is lodged, as the old cover automatically ceases at the point when the vehicle is sold.
It is therefore, important for the public to understand that an insurance contract is between two parties; the insurer and the policyholder, such that, when a vehicle is sold, the new owner should not assume that the previous insurance policy covers their vehicle.
Therefore, once a vehicle changes hands, the new owner should approach their insurance agent, broker or insurer to buy valid insurance cover under their own name. This, the new vehicle owner can do even before change of official ownership of the registration book. The requirement applies to any vehicle insurance cover and does not depend on whether premiums were part or full paid.
Through the same principle, when one sells his/her vehicle, they can cancel the insurance cover and get a refund for the remaining period that the insurance company would not be carrying risk for the sold vehicle.
This is because the previous owner would have ceased to have an insurable interest on the vehicle (Principle of Insurable interest). The previous owner does not stand to lose anything if the new owner suffers loss or damage.
The principle is also applicable to other forms of insurance such as home insurance. A new homeowner should purchase his/her own insurance cover regardless of whether the house had insurance cover from its previous owner. The previous house owner does not stand to suffer any loss if that house is then razed by fire.